Reserve Management Could Face SEC Charges

Reserve Management might be facing enforcement action from the Securities and Exchange Commission (SEC) in connection with the failure of the firm's mutual fund.

On December 18, the staff of the SEC’s Division of Enforcement informed counsel to Reserve Management Company, Inc., of its intent to recommend that the SEC charge the firm with violations of certain provisions of federal securities laws.

According to a notice on Reserve Management’s Web site, the SEC staff also gave notice of its intention to recommend enforcement actions against Bruce Bent, president of the company and president and chairman of the board of each fund registered with the SEC; Bruce Bent II, senior vice president of Reserve Management and co-CEO of each fund; and Arthur Bent, III, COO and treasurer of the firm and co-CEO of each fund.

The notice said the executives expect to defend vigorously against the allegations, and that each fund, through the independent members of its board of trustees, intends to cooperate fully with the SEC.

Reserve Management ran the Primary Fund, which “broke the buck” due to losses on debt issued by Lehman Brothers Holdings Inc., helping set off the recent U.S. financial crisis (see “Reserve Primary Fund Promises $20B in Shareholder Repayments’). Soon afterward, the U.S. Treasury started a guarantee program for money market funds (see “Treasury Extends Money -Market Guarantee Program’).

Reserve Management has been charged by Ameriprise Financial of tipping off certain institutional investors of its Lehman Brothers investment prior to its Primary Fund shares dropping to below $1 in value (see “Lawsuits Spring up from Lehman Brothers Fall’).